Today’s New York Times has some interesting bits about energy costs and the effect on the US and Chinese manufacturing sector (made all the more relevant by the fact I’m reading a book on the history of the shipping container). Basically, the cheap underwear that you buy from WalMart is going to go up in price.
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”
While many feel the effects of globalization will be very hard to undo, they also point out that oil prices are not about to drop anytime soon. The article mentions the maquiladora factories in Mexico (closed back when oil was $10 a barrel) will soon be reopening. It also cites as an example the decision by Telsa motors to build their car in California instead of bringing all the parts together globally in one massively expensive shipping operation.
When I was in China, I was shocked at how little energy is available in some of the industrial areas. Three to four days a week see black or brown outs, and many of the factories have large scale (and inefficient) generators to keep operations functioning. I seem to recall the figure that energy requirements were 3x those in the to produce the same goods because of all the problems in the electrical grid.
Related: The head of Alibaba, sort of the ‘gateway’ to Chinese manufacturers, is predicting hard times ahead for his company (which relies in large part by doing introductions between Western buyers and Chinese factories).